Release Details

Carriage Services Announces Second Quarter 2017 Results And Revises Rolling Four Quarter Outlook

July 26, 2017 at 4:49 PM EDT

HOUSTON, July 26, 2017 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced results for the second quarter ended June 30, 2017.

Mel Payne, Chief Executive Officer, stated, "After over five outstanding years of Good To Great Journey performance records, we had a relatively weak earnings performance in the second quarter of 2017, i.e. GAAP Diluted EPS of $0.24 (down 20.0% from prior year) and Adjusted Diluted EPS of $0.30 (down 18.9%) on record revenue of $63.9 million (up 3.2%). Adjusted Free Cash Flow also decreased $9.8 million in the first half of 2017 compared to last year. Our earnings underperformance in the second quarter was primarily related to a 460 basis point decline in our Acquisition Funeral Field EBITDA Margin to 38.0%, a continuation from the first quarter of weak same store cemetery sales and margin performance, a 16.0% increase in Total Overhead comparative quarter over quarter and a one million increase (6.0%) in the diluted share count for the second quarter calculated under our convertible subordinated debt formula because of the share price increase this year versus last.

We view specific areas of concentrated operational weakness, i.e. integration of recent funeral home acquisitions and same store cemetery sales and margins, as "glass half full" opportunities for improvement toward our goal of maximizing the long term intrinsic value of Carriage.  Moreover, we have taken the opportunity to selectively increase our investment in quality people within our Corporate Development, Operational Support and Information Technology teams in order to support what we believe will be an increased level of industry consolidation over the next five years. These specific people investments combined with higher than expected severance and public company costs led to the $1.2 million increase in Total Overhead Expenses in the second quarter of this year versus last.

As part of Carriage's continued evolution, we previously made the commitment to only report Non-GAAP items if they were truly 'non-recurring.' This reporting change has decreased our year to date 2017 Adjusted Diluted EPS by $0.05 compared to the first half of 2016. The increase in our diluted share count has also negatively impacted our 2017 Adjusted Diluted EPS by $0.05. 

We are only two quarters into the second five year timeframe of our Good To Great Journey and have the view that the next five to ten years will produce performance trends that confirm the superiority of Carriage's High Performance Culture Framework as an operating, consolidating and value creation platform for the funeral and cemetery industries.

Second quarter highlights are shown below:

Three Months Ended June 30, 2017 compared to Three Months Ended June 30, 2016

  • Record Total Revenue of $63.9 million, an increase of 3.2%;
  • Net Income of $4.4 million, a decrease of 15.2%;
  • GAAP Diluted Earnings Per Share of $0.24, a decrease of 20.0%;

  • Record Total Field EBITDA of $25.3 million, an increase of 0.7%;
  • Total Field EBITDA Margin down 100 basis points to 39.6%;
  • Adjusted Consolidated EBITDA of $16.5 million, a decrease of 7.1%;
  • Adjusted Consolidated EBITDA Margin down 280 basis points to 25.9%;
  • Adjusted Net Income of $5.5 million, a decrease of 13.1%; and
  • Adjusted Diluted Earnings Per Share of $0.30, a decrease of 18.9%.

Six Months Ended June 30, 2017 compared to Six Months Ended June 30, 2016

  • Record Total Revenue of $132.0 million, an increase of 5.4%;
  • Record Net Income of $11.5 million, an increase of 17.6%;
  • Record GAAP Diluted Earnings Per Share of $0.63, an increase of 10.5%;

  • Record Total Field EBITDA of $54.8 million, an increase of 3.8%;
  • Total Field EBITDA Margin down 70 basis points to 41.5%;
  • Adjusted Consolidated EBITDA of $37.1 million, a decrease of 1.6%;
  • Adjusted Consolidated EBITDA Margin down 200 basis points to 28.1%;
  • Adjusted Net Income of $13.6 million, a decrease of 4.8%; and
  • Adjusted Diluted Earnings Per Share of $0.75, a decrease of 10.7%.

Listed below are High Performance Hero Managing Partners leading us during the second quarter on our Good To Great Journey," concluded Mr. Payne.

Dave DeRubeis

Cody-White Funeral Home; Milford, CT

Patrick Schoen*

Jacob Schoen & Son Funeral Home; New Orleans, LA

Jason Higginbotham

Lakeland Funeral Home; Lakeland, FL

Heather Simons

Hubbard Funeral Home; Baltimore, MD

Randy Valentine

Dieterle Memorial Home & Cremation Ceremonies; Montgomery, IL

Bob Thomas

Malone Funeral Home; Grayson, KY

Pam Parramore

Baker-Stevens-Parramore Funeral Homes; Middletown, OH

Cliff Pope*

Havenbrook Funeral Home; Norman, OK

Scott Glover

Alsip & Persons Funeral Chapel; Nampa, ID

* Notes High Performance Heroes from First Quarter 2017.

TRUST FUND PERFORMANCE

Shown below are consolidated performance metrics for the combined trust fund portfolios (preneed funeral, cemetery merchandise and services and cemetery perpetual care) at key dates.

Investment Performance

Investment Performance(1)

Index Performance

Discretionary

Total Trust

S&P 500
Stock Index

High Yield
Index

70/30 index

Benchmark(2)






6 months ended 06/30/2017

4.6%

4.3%

9.3%

4.9%

6.2%

1 year ended 12/31/2016

19.7%

18.3%

12.0%

17.6%

15.9%

2 years ended 12/31/2016

16.0%

15.1%

13.5%

12.0%

12.4%

3 years ended 12/31/2016

25.7%

24.2%

28.9%

14.8%

19.0%

4 years ended 12/31/2016

43.6%

41.2%

70.6%

23.4%

37.6%

5 years ended 12/31/2016

72.8%

65.4%

97.8%

42.6%

59.2%







(1) Investment performance includes realized income and unrealized appreciation.

(2) The 70/30 Benchmark is 70% weighted to the High Yield Index and 30% weighted to the S&P 500 Stock Index.

 

Asset Allocation as of June 30, 2017(in thousands)

Discretionary
Trust Funds

Total
Trust Funds

Asset Class

MV

%

MV

%

Cash

$

13,951

7%

$

29,296

12%

Equities

60,894

31%

63,433

28%

Fixed Income

119,057

60%

130,442

58%

Other/Insurance

3,279

2%

3,472

2%

Total Portfolios

$

197,181

100%

$

226,643

100%

For the six months ended June 30, 2017, Carriage's discretionary trust funds returned 4.6% versus 6.2% for the 70/30 index benchmark. The performance of our preneed trust fund portfolio in the second quarter was in line with our expectations and reflected no change in our overall portfolio strategy.

ADJUSTED FREE CASH FLOW

We produced Adjusted Free Cash Flow from operations for the three and six months ended June 30, 2017 of $9.2 million and $15.5 million, respectively, compared to Adjusted Free Cash Flow from operations of $13.2 million and $25.4 million for the corresponding periods in 2016. The year over year decrease in Adjusted Free Cash Flow was due to weak operating performance, the reduction of Non-GAAP "cash items" and timing of maintenance capital expenditures and federal tax payments during the first half of the year.

A reconciliation of Cash Flow Provided by Operations to Adjusted Free Cash Flow for the three and six months ended June 30, 2017 and 2016 is as follows (in thousands):

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

Cash Flow Provided by Operations

$

14,753

$

12,087

$

24,986

$

20,246

Cash Used for Maintenance Capital Expenditures

(1,755)

(2,929)

(3,373)

(4,702)

Free Cash Flow

$

12,998

$

9,158

$

21,613

$

15,544








Plus: Incremental Special Items:






Acquisition and Divestiture Expenses

—

—

516

—

Severance Costs

—

—

2,759

—

Consulting Fees

228

—

496

—

Adjusted Free Cash Flow

$

13,226

$

9,158

$

25,384

$

15,544

ROLLING FOUR QUARTER OUTLOOK

The Rolling Four Quarter Outlook ("Outlook") reflects management's opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending June 30, 2018 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time. Rather our intent and goal is to reflect a "roughly right range" most of the time of future Rolling Four Quarter Outlook performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time.

Similarly, we self-publish a Company and Investment Profile, available on our website, that includes a Five Year "Roughly Right Scenario" of our future performance which together with our Five Year Trend Report provides investors a ten year past and future profile of our financial value creation dynamics and condition, making it easier to judge whether our "trends will continue to be the friend" of long term investors.

In light of current operating trends and increased Overhead expenses, we are lowering our Rolling Four Quarter Outlook of Adjusted Diluted Earnings Per Share by $0.08 to a range of $1.65 - $1.69 for the period ending June 30, 2018.

ROLLING FOUR QUARTER OUTLOOK - Period Ending June 30, 2018

Range

(in millions, except per share amounts)

Revenues

$262 - $266

Adjusted Consolidated EBITDA

$77 - $81

Adjusted Net Income

$29 - $31

Adjusted Basic Earnings Per Share

$1.76 - $1.80

Adjusted Diluted Earnings Per Share(1)

$1.65 - $1.69

Factors affecting our analysis include, among others, funeral contract volumes, average revenue per funeral service, cemetery interment volumes, preneed cemetery sales, capital expenditures, execution of our funeral and cemetery Standards Operating Model, market volatility and changes in Federal Reserve monetary policy. Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income, Adjusted Basic Earnings Per Share and Adjusted Diluted Earnings Per Share for the four quarter period ending June 30, 2018 are expected to improve relative to the trailing four quarter period ended June 30, 2017 due to increases in our existing Funeral Home and Cemetery operating portfolio.

(1)

The Rolling Four Quarter Outlook on Adjusted Diluted Earnings Per Share does not include any changes to our fully diluted share count that could occur related to additional share repurchases or a stock price increase and EPS dilution calculations related to our convertible subordinated notes and outstanding and exercisable stock options.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, July 27, 2017 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-55235237) and ask for the Carriage Services conference call.  A replay of the conference call will be available through July 31, 2017 and may be accessed by dialing 855-859-2056 (ID-55235237). The conference call will also be available at www.carriageservices.com.

For any investor relations questions, please contact Viki Blinderman at 713-332-8568 or Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com.


CARRIAGE SERVICES, INC.

OPERATING AND FINANCIAL TREND REPORT

(in thousands, except per share amounts)







Three Months Ended June 30,

Six Months Ended June 30,

2016

2017

% Change

2016

2017

% Change






Same Store Contracts






Atneed Contracts

5,867

5,825

(0.7%)

12,165

12,323

1.3%

Preneed Contracts

1,379

1,384

0.4%

2,883

2,880

(0.1%)

Total Same Store Funeral Contracts

7,246

7,209

(0.5%)

15,048

15,203

1.0%

Acquisition Contracts






Atneed Contracts

769

1,015

32.0%

1,489

2,204

48.0%

Preneed Contracts

127

198

55.9%

266

430

61.7%

Total Acquisition Funeral Contracts

896

1,213

35.4%

1,755

2,634

50.1%

Total Funeral Contracts

8,142

8,422

3.4%

16,803

17,837

6.2%








Funeral Operating Revenue






Same Store Revenue

$

38,583

$

38,561

(0.1%)

$

79,935

$

81,278

1.7%

Acquisition Revenue

5,745

8,119

41.3%

11,307

17,364

53.6%

Total Funeral Operating Revenue

$

44,328

$

46,680

5.3%

$

91,242

$

98,642

8.1%








Cemetery Operating Revenue






Same Store Revenue

$

12,494

$

11,935

(4.5%)

$

23,626

$

22,774

(3.6%)

Acquisition Revenue

625

700

12.0%

1,334

1,609

20.6%

Total Cemetery Operating Revenue

$

13,119

$

12,635

(3.7%)

$

24,960

$

24,383

(2.3%)








Financial Revenue






Preneed Funeral Commission Income

$

356

$

333

(6.5%)

$

777

$

636

(18.1%)

Preneed Funeral Trust Earnings

1,783

1,726

(3.2%)

3,750

3,672

(2.1%)

Cemetery Trust Earnings

1,831

2,028

10.8%

3,597

3,744

4.1%

Preneed Cemetery Finance Charges

448

450

0.4%

870

932

7.1%

Total Financial Revenue

$

4,418

$

4,537

2.7%

$

8,994

$

8,984

(0.1%)

Total Revenue

$

61,865

$

63,852

3.2%

$

125,196

$

132,009

5.4%








Field EBITDA






Same Store Funeral Field EBITDA

$

14,314

$

14,448

0.9%

$

31,225

$

32,173

3.0%

Same Store Funeral Field EBITDA Margin

37.1%

37.5%

40 bp

39.1%

39.6%

50 bp

Acquisition Funeral Field EBITDA

2,449

3,082

25.8%

4,862

7,096

45.9%

Acquisition Funeral Field EBITDA Margin

42.6%

38.0%

(460 bp)

43.0%

40.9%

(210 bp)

Total Funeral Field EBITDA

$

16,763

$

17,530

4.6%

$

36,087

$

39,269

8.8%

Total Funeral Field EBITDA Margin

37.8%

37.6%

(20 bp)

39.6%

39.8%

20 bp








Same Store Cemetery Field EBITDA

$

4,098

$

3,343

(18.4%)

$

7,941

$

6,638

(16.4%)

Same Store Cemetery Field EBITDA Margin

32.8%

28.0%

(480 bp)

33.6%

29.1%

(450 bp)

Acquisition Cemetery Field EBITDA

91

190

108.8%

312

543

74.0%

Acquisition Cemetery Field EBITDA Margin

14.6%

27.1%

1,250 bp

23.4%

33.7%

1,030 bp

Total Cemetery Field EBITDA

$

4,189

$

3,533

(15.7%)

$

8,253

$

7,181

(13.0%)

Total Cemetery Field EBITDA Margin

31.9%

28.0%

(390 bp)

33.1%

29.5%

(360 bp)








Funeral Financial EBITDA

$

1,921

$

1,787

(7.0%)

$

4,118

$

3,830

(7.0%)

Cemetery Financial EBITDA

2,220

2,418

8.9%

4,323

4,505

4.2%

Total Financial EBITDA

$

4,141

$

4,205

1.5%

$

8,441

$

8,335

(1.3%)

Total Financial EBITDA Margin

93.7%

92.7%

(100 bp)

93.9%

92.8%

(110 bp)








Total Field EBITDA

$

25,093

$

25,268

0.7%

$

52,781

$

54,785

3.8%

Total Field EBITDA Margin

40.6%

39.6%

(100 bp)

42.2%

41.5%

(70 bp)









 

OPERATING AND FINANCIAL TREND REPORT

(in thousands, except per share amounts)







Three Months Ended June 30,

Six Months Ended June 30,

2016

2017

% Change

2016

2017

% Change






Overhead






Total Variable Overhead

$

2,186

$

2,542

16.3%

$

7,586

$

4,708

(37.9%)

Total Regional Fixed Overhead

844

826

(2.1%)

1,719

1,893

10.1%

Total Corporate Fixed Overhead

4,510

5,381

19.3%

9,573

11,113

16.1%

Total Overhead

$

7,540

$

8,749

16.0%

$

18,878

$

17,714

(6.2%)

Overhead as a Percentage of Revenue

12.2%

13.7%

150 bp

15.1%

13.4%

(170 bp)








Consolidated EBITDA

$

17,553

$

16,519

(5.9%)

$

33,903

$

37,071

9.3%

Consolidated EBITDA Margin

28.4%

25.9%

(250 bp)

27.1%

28.1%

100 bp








Other Expenses and Interest






Depreciation & Amortization

$

3,957

$

4,025

1.7%

$

7,691

$

7,872

2.4%

Non-Cash Stock Compensation

1,006

773

(23.2%)

1,964

1,609

(18.1%)

Interest Expense

2,968

3,206

8.0%

5,819

6,235

7.1%

Accretion of Discount on Convertible Subordinated Notes

954

1,066

11.7%

1,881

2,103

11.8%

Loss on Early Extinguishment of Debt

—

—


567

—

Other, Net

—

—


(305)

(3)

Pretax Income

$

8,668

$

7,449

(14.1%)

$

16,286

$

19,255

18.2%

Provision for Income Taxes

3,468

2,980


6,515

7,702

Tax Adjustment Related to Certain Discrete Items

—

59


—

59

Total Tax Provision

$

3,468

$

3,039


$

6,515

$

7,761

GAAP Net Income

$

5,200

$

4,410

(15.2%)

$

9,771

$

11,494

(17.6%)








Special Items, Net of Tax except for **






Acquisition and Divestiture Expenses

$

—

$

—


$

336

$

—

Severance and Retirement Costs

—

—


1,794

—

Consulting Fees

148

—


323

—

Accretion of Discount on Convertible Subordinated Notes **

954

1,066


1,881

2,103

Loss on Early Extinguishment of Debt

—

—


369

—

Gain on Sale of Assets

—

—


(198)

—

Sum of Special Items, Net of Tax

$

1,102

$

1,066

(3.3%)

$

4,505

$

2,103

(53.3%)

Adjusted Net Income

$

6,302

$

5,476

(13.1%)

$

14,276

$

13,597

(4.8%)

Adjusted Net Profit Margin

10.2%

8.6%

(160 bp)

11.4%

10.3%

(110 bp)








Adjusted Basic Earnings Per Share

$

0.38

$

0.33

(13.2%)

$

0.86

$

0.82

(4.7%)

Adjusted Diluted Earnings Per Share

$

0.37

$

0.30

(18.9%)

$

0.84

$

0.75

(10.7%)








GAAP Basic Earnings Per Share

$

0.31

$

0.26

(16.1%)

$

0.59

$

0.69

16.9%

GAAP Diluted Earnings Per Share

$

0.30

$

0.24

(20.0%)

$

0.57

$

0.63

10.5%








Weighted Average Basic Shares Outstanding

16,516

16,652


16,488

16,625

Weighted Average Diluted Shares Outstanding

17,075

18,093


16,862

18,083









Reconciliation to Adjusted Consolidated EBITDA






Consolidated EBITDA

$

17,553

$

16,519

(5.9%)

$

33,903

$

37,071

9.3%

Acquisition and Divestiture Expenses

—

—


516

—

Severance and Retirement Costs

—

—


2,759

—

Consulting Fees

228

—


496

—

Adjusted Consolidated EBITDA

$

17,781

$

16,519

(7.1%)

$

37,674

$

37,071

(1.6%)

Adjusted Consolidated EBITDA Margin

28.7%

25.9%

(280 bp)

30.1%

28.1%

(200 bp)

 

CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

December 31, 2016

June 30, 2017

ASSETS


Current assets:


Cash and cash equivalents

$

3,286

$

435

Accounts receivable, net

18,860

17,015

Inventories

6,147

6,327

Prepaid expenses

2,640

1,096

Other current assets

2,034

594

Total current assets

32,967

25,467

Preneed cemetery trust investments

69,696

70,176

Preneed funeral trust investments

89,240

88,503

Preneed receivables, net

30,383

31,584

Receivables from preneed trusts

14,218

15,077

Property, plant and equipment, net

235,113

235,468

Cemetery property, net

76,119

76,995

Goodwill

275,487

275,487

Intangible and other non-current assets

14,957

14,745

Cemetery perpetual care trust investments

46,889

47,539

Total assets

$

885,069

$

881,041

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:


Current portion of long-term debt and capital lease obligations

$

13,267

$

15,237

Accounts payable

10,198

6,446

Other liabilities

717

775

Accrued liabilities

20,091

14,312

Total current liabilities

44,273

36,770

Long-term debt, net of current portion

137,862

129,627

Revolving credit facility

66,542

61,081

Convertible subordinated notes due 2021

119,596

121,955

Obligations under capital leases, net of current portion

2,630

2,560

Deferred preneed cemetery revenue

54,631

55,093

Deferred preneed funeral revenue

33,198

34,756

Deferred tax liability

40,555

43,216

Other long-term liabilities

2,567

2,430

Deferred preneed cemetery receipts held in trust

69,696

70,176

Deferred preneed funeral receipts held in trust

89,240

88,503

Care trusts' corpus

46,290

47,015

Total liabilities

707,080

693,182

Commitments and contingencies:


Stockholders' equity:


Common stock, $.01 par value; 80,000,000 shares authorized; 22,490,855 and 22,569,361 shares issued at December 31, 2016 and June 30, 2017, respectively

225

226

Additional paid-in capital

215,064

215,694

Retained earnings

22,966

32,205

Treasury stock, at cost; 5,849,316 shares at December 31, 2016 and June 30, 2017

(60,266)

(60,266)

Total stockholders' equity

177,989

187,859

Total liabilities and stockholders' equity

$

885,069

$

881,041

 

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017






Revenues:






Funeral

$

46,467

$

48,739

$

95,769

$

102,950

Cemetery

15,398

15,113

29,427

29,059

61,865

63,852

125,196

132,009

Field costs and expenses:






Funeral

27,783

29,422

55,564

59,851

Cemetery

8,989

9,162

16,851

17,373

Depreciation and amortization

3,571

3,647

6,907

7,118

Regional and unallocated funeral and cemetery costs

2,715

2,954

5,764

5,908

43,058

45,185

85,086

90,250

Gross profit

18,807

18,667

40,110

41,759

Corporate costs and expenses:






General, administrative and other

5,831

6,568

15,078

13,415

Home office depreciation and amortization

386

378

784

754

6,217

6,946

15,862

14,169

Operating income

12,590

11,721

24,248

27,590

Interest expense

(2,968)

(3,206)

(5,819)

(6,235)

Accretion of discount on convertible subordinated notes

(954)

(1,066)

(1,881)

(2,103)

Loss on early extinguishment of debt

—

—

(567)

—

Other, net

—

—

305

3

Income before income taxes

8,668

7,449

16,286

19,255

Provision for income taxes

(3,468)

(2,980)

(6,515)

(7,702)

Tax adjustment related to certain discrete items

—

(59)

—

(59)

Total provision for income taxes

(3,468)

(3,039)

(6,515)

(7,761)

Net income

$

5,200

$

4,410

$

9,771

$

11,494








Basic earnings per common share:

$

0.31

$

0.26

$

0.59

$

0.69

Diluted earnings per common share:

$

0.30

$

0.24

$

0.57

$

0.63








Dividends declared per common share:

$

0.025

$

0.050

$

0.050

$

0.100








Weighted average number of common and common equivalent shares outstanding:






Basic

16,516

16,652

16,488

16,625

Diluted

17,075

18,093

16,862

18,083

 

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

For the Six Months
Ended June 30,

2016

2017

Cash flows from operating activities:


Net income

$

9,771

$

11,494

Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization

7,691

7,872

Provision for losses on accounts receivable

1,052

1,112

Stock-based compensation expense

2,303

1,609

Deferred income tax expense

1,116

406

Amortization of deferred financing costs

420

408

Accretion of discount on convertible subordinated notes

1,881

2,103

Loss on early extinguishment of debt

567

—

Net (gain) loss on sale and disposal of other assets

(67)

311




Changes in operating assets and liabilities that provided (required) cash:


Accounts and preneed receivables

(2,271)

(468)

Inventories and other current assets

1,303

2,804

Intangible and other non-current assets

300

211

Preneed funeral and cemetery trust investments

4,941

(1,252)

Accounts payable

(1,148)

(3,750)

Accrued and other liabilities

1,735

(5,102)

Deferred preneed funeral and cemetery revenue

(669)

2,020

Deferred preneed funeral and cemetery receipts held in trust

(3,939)

468

Net cash provided by operating activities

24,986

20,246




Cash flows from investing activities:


Acquisitions and land for new construction

(9,406)

(625)

Purchase of land and buildings previously leased

(6,258)

—

Net proceeds from the sale of other assets

555

—

Capital expenditures

(7,830)

(8,790)

Net cash used in investing activities

(22,939)

(9,415)




Cash flows from financing activities:


Borrowings from the revolving credit facility

27,100

36,800

Payments against the revolving credit facility

(59,700)

(42,400)

Borrowings from the term loan

39,063

—

Payments against the term loan

(5,625)

(5,625)

Payments on other long-term debt and obligations under capital leases

(689)

(723)

Payments on contingent consideration recorded at acquisition date

—

(101)

Proceeds from the exercise of stock options and employee stock purchase plan contributions

457

544

Taxes paid on restricted stock vestings and exercise of non-qualified options

(528)

(509)

Dividends paid on common stock

(831)

(1,668)

Payment of loan origination costs related to the credit facility

(717)

—

Excess tax deficiency of equity compensation

(229)

—

Net cash used in financing activities

(1,699)

(13,682)




Net increase (decrease) in cash and cash equivalents

348

(2,851)

Cash and cash equivalents at beginning of period

535

3,286

Cash and cash equivalents at end of period

$

883

$

435




NON-GAAP FINANCIAL MEASURES

This press release uses Non-GAAP financial measures to present the financial performance of the Company.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP.  We believe the Non-GAAP results are useful to investors because such results help investors compare our results to previous periods and provide insights into underlying trends in our business. The Company's GAAP financial statements accompany this release.  Reconciliations of the Non-GAAP financial measures to GAAP measures are provided in this press release.

The Non-GAAP financial measures include "Special Items", "Adjusted Net Income", "Consolidated EBITDA", "Adjusted Consolidated EBITDA", "Adjusted Consolidated EBITDA Margin", "Adjusted Free Cash Flow", "Funeral, Cemetery and Financial EBITDA", "Total Field EBITDA", "Total Field EBITDA Margin", "Adjusted Basic Earnings Per Share" and "Adjusted Diluted Earnings Per Share" in this press release.  These financial measurements are defined as similar GAAP items adjusted for Special Items and are reconciled to GAAP in this press release.  In addition, the Company's presentation of these measures may not be comparable to similarly titled measures in other companies' reports. The definitions used by the Company for our internal management purposes and in this press release are as follows:

  • Special Items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. Special Items are taxed at the federal statutory rate of 35 percent for both the three and six months ended June 30, 2016 and 2017, except for the accretion of the discount on the Convertible Notes as this is a non-tax deductible item.
  • Adjusted Net Income is defined as net income plus adjustments for Special Items and other non-recurring expenses or credits.
  • Consolidated EBITDA is defined as net income before income taxes, interest expenses, non-cash stock compensation, depreciation and amortization, and interest income and other, net.
  • Adjusted Consolidated EBITDA is defined as Consolidated EBITDA plus adjustments for Special Items and non-recurring expenses or credits.
  • Adjusted Consolidated EBITDA Margin is defined as Adjusted Consolidated EBITDA as a percentage of revenue.
  • Adjusted Free Cash Flow is defined as net cash provided by operations, adjusted by Special Items as deemed necessary, less cash for maintenance capital expenditures.
  • Funeral Field EBITDA is defined as Funeral Gross Profit, which is funeral revenue minus funeral field costs and expenses, less depreciation and amortization, regional and unallocated funeral costs and Funeral Financial EBITDA.
  • Cemetery Field EBITDA is defined as Cemetery Gross Profit, which is cemetery revenue minus cemetery field costs and expenses, less depreciation and amortization, regional and unallocated cemetery costs and Cemetery Financial EBITDA.
  • Funeral Financial EBITDA is defined as Funeral Financial Revenue less Funeral Financial Expenses.
  • Cemetery Financial EBITDA is defined as Cemetery Financial Revenue less Cemetery Financial Expenses.
  • Total Field EBITDA is defined as Gross Profit less depreciation and amortization, regional and unallocated funeral and cemetery costs.
  • Total Field EBITDA Margin is defined as Total Field EBITDA as a percentage of revenue.
  • Adjusted Basic Earnings Per Share is defined as GAAP Basic Earnings Per Share, adjusted for Special Items.
  • Adjusted Diluted Earnings Per Share is defined as GAAP Diluted Earnings Per Share, adjusted for Special Items.

Reconciliation of Non-GAAP Financial Measures:

This press release includes the use of certain financial measures that are not GAAP measures.  The Non-GAAP financial measures are presented for additional information and are reconciled to their most comparable GAAP measures below.

Reconciliation of Net Income to Adjusted Net Income for the three and six months ended June 30, 2016 and 2017 (in thousands):

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

Net Income

$

5,200

$

4,410

$

9,771

$

11,494

Special Items, Net of Tax except for **






Acquisition and Divestiture Expenses

—

—

336

—

Severance and Retirement Costs

—

—

1,794

—

Consulting Fees

148

—

323

—

Accretion of Discount on Convertible Subordinated Notes **

954

1,066

1,881

2,103

Loss on Early Extinguishment of Debt

—

—

369

—

Gain on Sale of Assets

—

—

(198)

—

     Total Special Items affecting Net Income

$

1,102

$

1,066

$

4,505

$

2,103

Adjusted Net Income

$

6,302

$

5,476

$

14,276

$

13,597

Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three and six months ended June 30, 2016 and 2017 (in thousands):

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

Net Income

$

5,200

$

4,410

$

9,771

$

11,494

Total Tax Provision

3,468

3,039

6,515

7,761

Pretax Income

$

8,668

$

7,449

$

16,286

$

19,255

Interest Expense

2,968

3,206

5,819

6,235

Accretion of Discount on Convertible Subordinated Notes

954

1,066

1,881

2,103

Loss on Early Extinguishment of Debt

—

—

567

—

Non-Cash Stock Compensation

1,006

773

1,964

1,609

Depreciation & Amortization

3,957

4,025

7,691

7,872

Other, Net

—

—

(305)

(3)

Consolidated EBITDA

$

17,553

$

16,519

$

33,903

$

37,071

Adjusted For:






Acquisition and Divestiture Expenses

—

—

516

—

Severance and Retirement Costs

—

—

2,759

—

Consulting Fees

228

—

496

—

Adjusted Consolidated EBITDA

$

17,781

$

16,519

$

37,674

$

37,071

Revenue

$

61,865

$

63,852

$

125,196

$

132,009
















Adjusted Consolidated EBITDA Margin

28.7%

25.9%

30.1%

28.1%

Reconciliation of Funeral and Cemetery Gross Profit to Field EBITDA for the three and six months ended June 30, 2016 and 2017 (in thousands):

Funeral Field EBITDA

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

Gross Profit (GAAP)

$

14,388

$

14,412

$

31,356

$

33,381

Depreciation & Amortization

2,138

2,529

4,216

4,898

Regional & Unallocated Costs

2,158

2,376

4,633

4,820

Funeral Financial EBITDA

(1,921)

(1,787)

(4,118)

(3,830)

Funeral Field EBITDA

$

16,763

$

17,530

$

36,087

$

39,269

 

Cemetery Field EBITDA

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

Gross Profit (GAAP)

$

4,419

$

4,255

$

8,754

$

8,378

Depreciation & Amortization

1,433

1,118

2,691

2,220

Regional & Unallocated Costs

557

578

1,131

1,088

Cemetery Financial EBITDA

(2,220)

(2,418)

(4,323)

(4,505)

Cemetery Field EBITDA

$

4,189

$

3,533

$

8,253

$

7,181

 

Total Field EBITDA

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

Funeral Field EBITDA

$

16,763

$

17,530

$

36,087

$

39,269

Cemetery Field EBITDA

4,189

3,533

8,253

7,181

Funeral Financial EBITDA

1,921

1,787

4,118

3,830

Cemetery Financial EBITDA

2,220

2,418

4,323

4,505

Total Field EBITDA

$

25,093

$

25,268

$

52,781

$

54,785

Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the three and six months ended June 30, 2016 and 2017:

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

GAAP Basic Earnings Per Share

$

0.31

$

0.26

$

0.59

$

0.69

Special Items Affecting Net Income

0.07

0.07

0.27

0.13

Adjusted Basic Earnings Per Share

$

0.38

$

0.33

$

0.86

$

0.82

Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the three and six months ended June 30, 2016 and 2017:

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2017

2016

2017

GAAP Diluted Earnings Per Share

$

0.30

$

0.24

$

0.57

$

0.63

Special Items Affecting Net Income

0.07

0.06

0.27

0.12

Adjusted Diluted Earnings Per Share

$

0.37

$

0.30

$

0.84

$

0.75

On page three of this press release, we present the Rolling Four Quarter Outlook ("Outlook") which reflects management's opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending June 30, 2018 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time.  The following four reconciliations are presented at the midpoint of the range in this Outlook.

Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the estimated Rolling Four Quarters ending June 30, 2018 (in thousands):

Rolling Four Quarter Outlook

June 30, 2018E

Net Income

$

25,700


Total Tax Provision

17,200


Pretax Income

$

42,900


Net Interest Expense, including Accretion of Discount on Convertible Subordinated Notes

16,500


Depreciation & Amortization, including Non-cash Stock Compensation

19,600


Consolidated EBITDA

$

79,000


Adjusted for Special Items

—


Adjusted Consolidated EBITDA

$

79,000


Reconciliation of Net Income to Adjusted Net Income for the estimated Rolling Four Quarters ending June 30, 2018 (in thousands):

Rolling Four Quarter Outlook

June 30, 2018E

Net Income

$

25,700


Special Items

4,200


Adjusted Net Income

$

29,900


Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the estimated Rolling Four Quarters ending June 30, 2018:

Rolling Four Quarter Outlook

June 30, 2018E

GAAP Basic Earnings Per Share

$

1.53


Special Items Affecting Net Income

0.25


Adjusted Basic Earnings Per Share

$

1.78


Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the estimated Rolling Four Quarters ending June 30, 2018:

Rolling Four Quarter Outlook

June 30, 2018E

GAAP Diluted Earnings Per Share

$

1.43


Special Items Affecting Net Income

0.23


Adjusted Diluted Earnings Per Share

$

1.66


Supplemental Information:

Funeral homes and cemeteries purchased after December 31, 2012 are referred to as "Acquired" in our Trend Report. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.

The presentation below highlights the impact of our 2012 Acquired Portfolio that moved from Acquired to Same Store beginning January 1, 2017 (in thousands):

For the Three Months
Ended June 30, 2016

For the Six Months
Ended June 30, 2016







Revenue

EBITDA

Revenue

EBITDA

2012 Acquired Portfolio

$

3,728

$

1,460

$

7,843

$

3,219

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

Certain statements made herein or elsewhere by, or on behalf of, the Company that are not historical facts are intended to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  In addition to historical information, this Press Release contains certain statements and information that may constitute forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding any projections of earnings, revenues, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. The words "may", "will", "estimate", "intend", "believe", "expect", "seek", "project", "forecast", "foresee", "should", "would", "could", "plan", "anticipate" and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

  • our ability to find and retain skilled personnel;
  • our ability to execute our growth strategy;
  • the effects of competition;
  • the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;
  • changes in the number of deaths in our markets;
  • changes in consumer preferences;
  • our ability to generate preneed sales;
  • the investment performance of our funeral and cemetery trust funds;
  • fluctuations in interest rates;
  • our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
  • the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;
  • the financial condition of third-party insurance companies that fund our preneed funeral contracts;
  • increased or unanticipated costs, such as insurance or taxes;
  • effects of the application of applicable laws and regulations, including changes in such regulations or the interpretation thereof;
  • consolidation of the deathcare industry; and
  • other factors and uncertainties inherent in the deathcare industry.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see "Risk Factors" in our most recent Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. A copy of the Company's Form 10-K, other Carriage Services information and news releases are available at www.carriageservices.com.

This press release includes the use of certain financial measures that are not GAAP measures.  The Non-GAAP financial measures are presented for additional information and are reconciled to their most comparable GAAP measures in the tables presented above.

 

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SOURCE Carriage Services, Inc.

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